Reservations and Overbooking

Yuri Arenberg
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Yuri Arenberg: Brooklyn College, CUNY

Eastern Economic Journal, 1991, vol. 17, issue 1, 100-108

Abstract: This paper examines the reservations policy of a risk neutral price-setting firm facing a service capacity constraint and the possibility that some of its reservation holders may not show up to claim the service. It is shown that (1) the firm always overbooks; (2) the larger the service capacity, the smaller the rate of overbooking; and (3) if the refundable portion of the firm's fee and the penalty rate for denying service are moderate, an increase in capacity does not necessarily warrant a greater number of reservations.

Keywords: Firm; Firms (search for similar items in EconPapers)
JEL-codes: D21 L93 (search for similar items in EconPapers)
Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:eej:eeconj:v:17:y:1991:i:1:p:100-108

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